NOTE 13 - INCOME TAXES

The income before income tax provision consists of the following:

	Year Ended
	November 3, 2013			October 28, 2012			October 30, 2011

United States	$	(14,164	)	$	(5,474	)	$	(20,396	)
Foreign		40,969			46,122			56,295
	$	26,805		$	40,648		$	35,899

The income tax provision consists of the following:

	Year Ended
	November 3, 2013			October 28, 2012			October 30, 2011
Current:
Federal	$	208		$	81		$	291
State		65			(5	)		74
Foreign		7,222			11,332			15,550

Deferred:
Federal		-			-			-
State		(181	)		-			-
Foreign		(85	)		(615	)		(224	)
Total	$	7,229		$	10,793		$	15,691

The income tax provision differs from the amount computed by applying the statutory U.S. federal income tax rate to the income before income taxes as a result of the following:

	Year Ended
	November 3, 2013			October 28, 2012			October 30, 2011
U.S. federal income tax at statutory rate	$	9,382		$	14,227		$	12,564
Changes in valuation allowances		1,325			1,806			(8,334	)
Distributions from foreign subsidiaries		1,957			2,073			1,925
State income taxes, net of federal benefit		267			(1,956	)		503
Foreign tax rate differentials		(4,851	)		(3,805	)		(4,467	)
Tax credits		(3,967	)		(1,071	)		(522	)
Uncertain tax positions, including reserves, settlements and resolutions		1,471			1,984			1,499
Debt extinguishment losses		-			(2,879	)		11,942
Equity based compensation		765			499			231
Other, net		880			(85	)		350
	$	7,229		$	10,793		$	15,691

The effective tax rate differs from the U.S. statutory rate of 35% in fiscal years 2013 and 2012 primarily due to a higher level of earnings being taxed at lower statutory rates in foreign jurisdictions, combined with the benefit of various investment credits in certain foreign jurisdictions. The effective tax rate differs from the U.S. statutory rate of 35% in fiscal year 2011 primarily due to the impact of the non-deductible debt extinguishment losses related to the Company’s acquisition of a portion of its 5.5% convertible senior notes and the impact of a foreign subsidiary’s tax settlement, offset by a higher level of earnings taxed at lower statutory rates in foreign jurisdictions.

The net deferred income tax assets consist of the following:

	November 3, 2013			October 28, 2012
Deferred income tax assets:
Net operating losses	$	57,631		$	56,252
Reserves not currently deductible		7,101			6,382
Alternative minimum tax credits		3,116			3,116
Tax credit carryforwards		7,051			4,785
Other		1,892			2,634
		76,791			73,169
Valuation allowances		(56,661	)		(55,536	)
		20,130			17,633
Deferred income tax liabilities:
Undistributed earnings of foreign subsidiaries		(5,347	)		(4,575	)
Property, plant and equipment		(890	)		(604	)
Investments		(371	)		(170	)
Other		(992	)		(351	)
		(7,600	)		(5,700	)
Net deferred income tax assets	$	12,530		$	11,933
Reported as:
Current deferred tax assets	$	1,082		$	1,199
Long-term deferred tax assets		12,455			11,395
Long-term deferred tax liabilities		(1,007	)		(661	)
	$	12,530		$	11,933

Unrecognized tax benefits associated with uncertain tax positions were $4.9 million at November 3, 2013, of which $1.7 million is recorded in other liabilities in the consolidated balance sheet, and $3.2 million is recorded as a reduction to deferred tax assets and the related valuation allowance, and were $3.9 million at October 28, 2012, of which $1.9 million is recorded in other liabilities in the consolidated balance sheet, and $2.0 million is recorded as a reduction to deferred tax assets and the related valuation allowance. If recognized, $1.7 million of the benefits would favorably affect the Company's effective tax rate in future periods. Included in these amounts for both fiscal years 2013 and 2012 was $0.1 million for interest and penalties. The Company includes any applicable interest and penalties related to uncertain tax positions in its income tax provision. Shortly after the close of the 2013 fiscal year, the Company reached a settlement with the relevant tax authorities regarding one of its non-US subsidiaries’ 2010 tax year, as reflected below. As of November 3, 2013, the Company believes it is not reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease in the next twelve months. The Company is currently subject to examination by the U.S. for fiscal years 2011 and 2012. With respect to major foreign and state tax jurisdictions, the Company is no longer subject to tax authority examinations for years prior to fiscal year 2008.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:

	Year Ended
	November 3, 2013			October 28, 2012			October 30, 2011
Balance at beginning of year	$	3,793		$	1,824		$	1,676

Additions (reductions) for tax positions in prior years		1,224			1,932			709

Additions based on current year tax positions		207			616			502

Settlements		(406	)		(518	)		(1,063	)

Lapses of statutes of limitations		(61	)		(61	)		-
Balance at end of year	$	4,757		$	3,793		$	1,824

As of November 3, 2013, the Company had available U.S. Federal tax operating loss carryforwards of approximately $129.8 million which expire between 2020 and 2033, and research and development tax credit carryforwards of approximately $3.8 million which expire between 2018 and 2033. As of November 3, 2013, the Company also has U.S. state tax operating loss carryforwards of approximately $193.0 million and foreign tax operating loss carryforwards of approximately $40.9 million. These loss carryforwards expire between 2014 and 2033 with the exception of $0.6 million that has an indefinite life.

The Company has established a valuation allowance for a portion of its deferred tax assets because it believes, based on the weight of all available evidence, that it is more likely than not that a portion of its net operating loss carryforwards may expire prior to utilization. The valuation allowance increased (decreased) by $1.1 million, $2.5 million and $(8.2) million in fiscal years 2013, 2012 and 2011, respectively.

As of November 3, 2013, the Company had $3.1 million of alternative minimum tax credit carryforwards that are available to offset future federal income taxes payable. The Company also has state tax credits available of $4.9 million which, if they are not utilized, will begin to expire in 2014 and foreign investment tax credits of $0.1 million.

As of November 3, 2013, the undistributed earnings of foreign subsidiaries included in consolidated retained earnings amounted to $136.4 million, of which $15.3 million of earnings is considered not to be permanently reinvested. The amount of undistributed earnings is calculated taking into account the net amount of earnings of the Company’s foreign subsidiaries, considering its multi-tier subsidiary structure, and translating those earnings into U.S. dollars using exchange rates in effect as of the balance sheet date. During fiscal year 2008 a decision was made to not indefinitely reinvest earnings in certain foreign jurisdictions. No provision has been made for taxes due on the remaining undistributed earnings of $121.1 million considered to be indefinitely invested. Should the Company elect in the future to repatriate the foreign earnings so invested, it may incur additional income tax expense on those foreign earnings, the amount of which is not practicable to compute.

PKLT, the Company's FPD manufacturing facility in Taiwan, has been accorded a tax holiday, which started in 2012 and expires in 2017. In addition, the Company had been accorded a tax holiday in China which expired in 2011. These tax holidays had no dollar or per share effect in the fiscal years ended November 3, 2013, October 28, 2012 and October 30, 2011. In Korea and at Photronics Semiconductor Mask Corporation (PSMC) in Taiwan, various investment tax credits have been earned to reduce the Company's effective income tax rate.

Income tax payments were $10.7 million, $14.3 million and $10.4 million in fiscal 2013, 2012 and 2011, respectively. Cash received for refunds of income taxes paid in prior years amounted to $0.3 million, $0.1 million and $0.2 million in fiscal years 2013, 2012 and 2011, respectively.